From patronage to partnership: Toward a new industrial policy for the fusion program

Journal of Fusion Energy, VoL 11, Nos. 3/4, 1992

From Patronage to Partnership: Toward a New Industrial Policy for the Fusion Program

Bennet t Mi l ler I

This report is part of a Department of Energy assessment of the government's policy toward industrial involvement in the nation's fusion program. It was informally commissioned by the Offices of Energy Research and Magnetic Fusion Energy to seek and to evaIuate the opinion of experts on the subject and to provide exposure to issues that might otherwise be obscured by the natural tendency of institutions to protect themselves and their clients. Because it was not formally chartered, it was not obliged to seek consensus. All views and opinions are solely those of its author.

1. INTRODUCTION

The genesis of the overall assessment can be found in a February 1992 letter to the Department's Director of Research from the Fusion Energy Advisory Commit- tee (FEAC) 'which suggested that the current level of industrial involvement in the fusion program is less than that needed to keep it actively involved for the long term.

Specifically, FEAC recommended that "[in order] to provide U.S. industry with knowledge of fusion re- quirements and to secure the maximum benefit from industrial involvement, DOE should develop a plan that deliberately includes a broader and more integral industrial participation in the fusion program." This is another way of expressing the generally felt concern that after 30 years of waiting for some signal of a national commitment to the program, industry interest in it is flag- ging. Consider the following evidence.

There is not significant investor-owner or public utility interest in the program at this time. The totality of utility involvement consists of representation on two program advisory boards and then only in the person of

i Miller Energy Corporation, 7805 Fox Gate Ct, Bethesda, Maryland 20817.

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one individual. The Electric Power Research Institute (EPRI), which once was committed to the idea of fusion as the long-term solution to our energy needs, now sees it playing no part in meeting the nation's long-term electrical energy demand. In its most recent annual report, it makes no mention of fusion as a future utility option, effectively consigning it to the role of perennial brides- maid. 2

Things are little better on the vendor side of industry that has provided the bulk of all industrial involvement in the program. It too is re-examining its role. After 30-plus years of deferring the normal rewards of business, vendors are looking for tangible signs that their long-term interest can be made profitable. In the final analysis they are profit making entities and must pay attention to the bottom-line of even their speculative research and development efforts or eventually abandon them.

In short, there is no operative government policy on industrial involvement in the fusion program, only an unwritten guideline that industry growth will follow growth

2 Recently EPRI has begun to seriously re-examine the fusion option; but it is unlikely to support a major alternative to the government's current program.

0164-0313/92/1200-0213506.50/0 �9 I992 Plenum Publishing Corporation

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in the laboratory or core programs in good times and industry contraction will precede core contraction in bad times. It is not a policy that encourages enthusiastic endorsement by potential industrial partners. Is it any wonder that industry interest in fusion is at an all-time low? The program is disconnected from its foremost customer and on the verge of losing the interest of its most supportive non-Federal constituency. Whatever the reasons for this state of affairs, it cannot be allowed to continue. Without industry's active participation there is no fusion option.

The business side of fusion must have a meaningful role in the program if it is to continue supporting it. It is time to establish a formal industrial policy--one that brings industry into its proper role as a partner in the enterprise.

If fusion as a technology is ever to be a working element of the nation's future energy supply, it must become a part of that industrial base. In this context, the term industry generally means publicly and privately owned utilities; the "architecture and engineering" and the "construction and engineering" sectors that tradi- tionally supply them; the high technology companies that follow and participate in government sponsored programs; and the for-profit infrastructure that supports them all.

We know that when fusion becomes an integral part of the nation's energy supply infrastructure, the technology will have become an accepted part of the commercial engineering base.

When fusion power plants provide reliable energy to the nation's grid, there will be a utility industry that is willing to specify them as desired options in their service areas.

There will be an architecture and engineering industry and a construction and engineering industry that understands the engineering aspects of such plants and will bid on contracts to design and build them.

There will be a consumer base that is comfortable with the way in which the product they are buying is being generated and delivered.

There will not be a government-sponsored program funding research and development work at $500 million per year; and no national laboratories employing hundreds of PhD scientists and engineers, and several thousand support personnel; and probably very few universities doing anything more than exploring peripheral problems of engineering interest.

Industry must become the program. It is where the program must go. This paper will explore ways of trans- iting from a government-sponsored, taxpayer underwri- ten effort to one in which consumers pay market-

determined rates for a product they want and need. It will not be a one-step process, nor will it be accom- plished in the next year or so; but it must take place.

2. BACKGROUND

Among the many and varying goals of the government's program to harness thermonuclear power, one of the most enduring has been the desirability of increasing industrial involvement in the enterprise.

As far back as the early 1970s, when the program was riding a wave of deserved optimism and imminent success, it expanded its engineering and development efforts to include significant participation by the nuclear engineering community and the utility industry. Indus- trial involvement then was being seen in the following terms.

Commercialization of fusion reactors [will] occur pri- marily through a developing fusion vendor industry working with Government, national laboratories and the electric utilities... [An] objective of the fusion program is to develop sufficient data that utilities and industry can address all critical issues involved in arriving at power plant purchase options (emphasis added)?

By the early 1980s, as optimism waned somewhat, the emphasis was still on engineering but the call was rephrased. "As fusion enters the engineering phase, it is clear that industry must become more centrally involved."4

In the early 1990s, as the prospects for fusion power receded into a more modest mid-21st century option, a more pessimistic note was sounded. "In spite of stated intentions to have a strong industrial role developed in in fusion, not much has happened. Industrial opportunities remain very limited in fu s ion . . . [the] general objectives for US industrial involvement should be to . . .deve lop a long-term U.S. industrial infrastructure aimed at providing future US-built fusion power plants. ''5

But, whatever the tone at the time, the need to increase the role of industry in the future has been an unwavering constant through all the years of the program--something that always needs to be done, but is never sufficiently important to displace other priorities. The future is always clearest to those who would post- pone it. But while some would procrastinate, the program can no longer afford to do so.

3 Fusion Power by Magnetic Confinement, Program Plan, July 1976, prepared by the Division of Magnetic Fusion Energy, US ERDA.

4 Report of the Fusion Review Panel of the Energy Research Advisory Board, June 1980, U.S. Department of Energy.

5 Private Correspondence, General Atomics to Stephen Dean, Presi- dent, Fusion Power Associates, August 1991.

Patronage to Partnership 215

There are dramatic new pressures emerging in the energy marketplace that demand attention. Encour- aged by a proactive Administration and a sympathetic Congress that are rewriting the laws that govern the basic legal structure of the utility industry as we have come to know it, utilities are being forced to re-examine the way in which they do business. The fusion program ignores at its peril the fact that half of all the planned additions to electrical generating capacity in the near future will be from disbursed technologies or cogeneration technologies--not from large central sta- tion power plants. In such an environment, fusion must maintain its visibility and its competitive edge. It cannot continue as a high-powered physics program no matter how successful it is in prosecuting the science. It must become an industry-driven engineering effort focussed on the earliest possible entry of fusion into the marketplace.

Why is it appropriate to begin planning for that now? Quite without fanfare, the fusion program has passed a milestone that 10 years ago would have been trumpeted as a momentous breakthrough. While not yet economic, it is now feasible to build a fusion system that can pro- duce net energy. The demonstration of that fact was not the kind that many thought it would be. It was not a fusion version of Stagg Field, a burst of neutron activity from a experimental device that pushed some "Q meter" past 1.

It was a culmination of over 30 years of scientific effort--the collective wisdom of a mature, confident, scientific effort carried out around the world in a series of experiments over the past several years in the Joint European Torus in Great Britain, in the Tokomak Fusion Test Reactor in the U.S., in the JT-60 tokomak in Japan, and in the T-10 tokomak in Russia. It was a consensus that expressed itself in the willingness of an international team to propose the construction of a device large enough to be a pilot plant for a commercial-scale reactor, to have that idea scrutinized by their respective governments, and to see their governments agree to go forward with the device's design and to examine the ways in which its construction could be managed as a model of international cooperation.

It is hard to believe that in the current budgetary climate the fusion program could have gotten as far as it has unless there was an underlying rationale that pre- supposes the feasibility of the process. It is all the more remarkable when one recalls the emphasis that the program put on achieving "scientific feasibility" during the 1960s and 1970s. Then it was the "holy grail"--the ultimate measure of scientific success. And while it may have passed relatively unheralded, it is still, as it has

always been, the signal event for beginning the engineering phase of the program.

There are those who will argue that the question of fusion's feasibility can only be laid to rest in a next generation system. They are in the minority--the purists who unintentionally would keep the program mired at a level of research that will never answer all the questions that will be asked. There is an old saw that the best of anything is always on the drawing board. Nowhere does that maxim apply more appropriately than to fusion feasibility. There will always be another physics question to answer because, as all the practitioners know there cannot be a Stagg Field kind of feasibility demonstration, a definitive experiment of net energy production. The purists' feasibility can only be answered when a commercial-scale prototype reactor is brought into operation. But that, of course, becomes the proverbial "catch-22." For the demonstration of feasibility you must build a commercial-scale system; but you cannot get support for a commercial-scale system until pure feasibility is demonstrated.

In contrast, if one accepts a practical definition of feasibility i.e., the consensus of those who wilI have to do the job that the job can be done; the feeling by those whose careers and reputations are tied to the science that the science is behind them; and the general acceptance that engineering problems are those that need now to be addressed, then the program has indeed moved into its post-feasibility phase.

The natural next step is an industrially designed, net-energy system with as many commercial features as possible. Though most probably not a commercial prototype in the conventional sense, it will challenge industry to find engineering solutions to the immense problems of such a system. It will take years but it must happen and must come from industry if they are ever to to own fusion as a business. There exists now sufficient theoretical and empirical understanding of the plasma processes to identify ways in which future fusion reactors can be made cheaper, smaller, of enhanced reli- ability, and greater availability. However, each of these improvements hinges on the development and perfection of new technology. It is therefore, an appropriate time for the fusion program to make the transition from a university and national laboratory dominated program to a program balanced in the reverse. Isn't it ironic that after years of waiting for just this set of circumstances, industry is becoming less involved, not more so? This cannot be allowed to continue. Industry needs now to be tightly coupled to the program and the program to it.

The key to understanding how the private sector can become more actively involved in fusion is first an

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understanding of how government does business with industry, and even more importantly, how they can do business with industry, at least as it relates to this situation.

3. VENDORS AND PARTNERS: DOMINANT MODES OF GOVERNMENT-INDUSTRY INTERACTION

When industry becomes involved in any government-sponsored undertaking, it generally does so either as a vendor or as a partner, the choice being determined at the time by the government's perception of what it thinks it needs. There is no formula by which the deter- mination is made for a particular program, other than what the government believes is in the best interests of some over-arching governmental objective--it might be national security at onetime; public order at another; economic stability; or simply the best bargain for the taxpayer's dollar.

As we shall see, whatever the reason, the choice is often a critical determinant in the successful evolution of programs, especially those that the government would like to see move into the marketplace. What might have been the right choice at an early stage in the development of a government-sponsored technology, may become a distinct liability at another and later date. This is rarely appreciated at the time, and when it is, the political imperatives of the process often make it difficult to re- vise the original choice. Nowhere is this more true than for fusion.

3.1. The Vendor Option

In the vendor option, the government disburses ap- propriated funds to the private sector through the federal procurement process. Industry participates by bidding for work that is defined solely by the government. Po- tential bidders for the work are excluded from its definition because they might obtain an unfair advantage in the final competition.

This highly structured, carefully monitored process has evolved over the past half century into a body of administrative law and statute that provides an absolute maximum of fairness and competitiveness in the award of taxpayer dollars. It is the most natural vehicle for procuring services from the private sector because it has been honed by countless legal and political challenges; and it works well under a widely varying set of circumstances. Fairness and competitiveness are doctrines ap-

propriately enshrined in a procurement process that is fundamentally reflective of a democratic society.

For this reason, almost all government-sponsored programs that acquire services or products from the private sector begin in the vendor mode. It is the rare case when government departs from this norm. That is how the fusion program began and how it continues to op- erate. But the option is not an unmitigated blessing, de- spite its fundamental fairness. It does not work uniformly well.

The vendor mode works best when the government procures a product or a system that is already well- defined and in use, like the procurement of pencils to push the example to one extreme, or an airliner to push it to another. Specifications are clear, unequivocal, and involve few unknowns.

It works less well as a product or a system evolve into a program, especially one with long-time horizons and a significant research and development component. To the extent that hard items in a specification become diluted, and a system procurement becomes a program, managers seek more flexible procurement vehicles; but not much is available to them in the vendor mode. Al- ternative approaches can mean compromising the fairness doctrine which even in the most defensible of circumstances is done cautiously.

The vendor option works least well for programs that the government, as a matter of policy, wants to move into the marketplace--programs like fusion. For industry to become involved and stay involved in such programs for the time it takes to bring them to market, it must be confident that two conditions will obtain. There must be a stable, predictable business environment; and there must be a "pot of gold at the end of the rain- bow"--some perceived product that promises some perceived profit where the perception, right or wrong, is industry's perception and not the government's. Unfor- tunately, the vendor mode of operation is not suited to assuring that either of these conditions is met.

Consider fusion. Government has tried and for the most part has been successful in nurturing the technology to its current state. It freely acknowledges that its objective is to encourage the program to become a private sector business area. But because it must be sensitive to the criticism that it is playing favorites, it cannot be what the private sector needs it to be most. It cannot be a loyal patron.

The vendor mode through its fairness doctrine is obliged to solicit interest from the widest possible uni- verse of firms and to demand turnover at regular inter- vals to ensure that no one locks up the system, which however admirable and defensible does not engender


loyalty of patron to client or vice versa. Institutionally the government has little or no obligation to stick with a proven supplier, and, conversely, proven suppliers know that their efforts are only as good as their latest low bid.

Moreover, as we have already noted, one of the keys to protecting the integrity of the procurement process is the exclusion of input from potential bidders in the definition phase of a bid project--the phase that often determines the output product's ultimate cost and economic viability. This further discourages committed industrial involvement in a program because they may believe that the government's specification is not consistent with manufacture at a profit. The importance of this to industry cannot be overstated. Turning any con- cept into a commercial reality hinges on the fundamental issue of manufacturability and maintainability which can only be resolved by industry. It is at the heart of how firms do business.

Business executives are paid handsomely to make decisions that make money. They are paid to know what sells and at what price. For an officer of a company to accept the thinking of another institution regarding that crucial issue is to abdicate his or her fiduciary respon- sibility. Therefore it is almost impossible for industry to accept that the government knows their business and the marketplace better than they do. Unless intimately involved in the definition of a product and in its design and engineering, the private sector will hesitate before making any corporate commitment to the manufacture of that product.

Thus do competition and fairness discourage industry commitment. Vendors have little or no incentive to invest their own capital in a program that is statutorily limited in its ability to meet their basic demands.

If industry is not convinced that in supplying or participating in a particular government program it can generate a predictable stream of cash and profits for a reasonable number of years, it will phase out its activities in that area. There is nothing wrong with this; it happens all the time. Profit is not a dirty word. In the vendor mode of interaction, the government's program in fusion is not going to provide industry with a predictable stream of profits for a long time. Therefore industry is backing away. It is quite amazing Chat they have held on for so long.

To be sure, industry participation will not disappear from the program if the current operating mode is main- tained. Industry will always be willing to bid on work to make a dollar. But it will do little or nothing more. It wiJl make no corporate commitment to fusion, no board room decision 1Io make fusion a business area. There will be no designation of resources to advance industrial ca-

pabilities in anticipation of future opportunities. There will be no expenditure of political capital to keep policy informed on program progress. Industry will simply op- erate as a classic vendor of services--services that may or may not be of future value to the goal of commer- cializing the fusion option. There is nothing wrong with this if it supports program objectives, but it clearly does not. In the post-feasibility phase, industry must Cake the lead in providing engineering guidance to a program that must phase clown its physics activities in preparation for phasing them out.

In sum, if industry cannot see its way to make money in fusion, then the program must be resructured so that it can. If the government believes that it must pursue a course that is at variance with this imperative then it must accept the fact that industry may not participate. However, with a program, like fusion, whose future is inextricably tied to industry participation, and ultimately to industry dominance, then this step should be carefully evaluated before it is taken.

There is another way that the government can con- duct business that solves most of the problems that beset a long-term market-driven program operating in the vendor mode. It is the partnership option.

3.2. The Partnership Option

In the partnership mode, industry is accorded a preferred role in the development of individual initiatives within a government-sponsored, taxpayer-supported program. In direct contrast with the vendor option, government supports a business environment that encourages the long-term involvement of industry in the identified program--it grants some one or more firms a domestic version of "most favored nation" status. Government recognizes that the success of a program that it wants to promote is intimately tied to the ability and the willingness of industry to commit its best resources, especially its best people, to the manufacture of a product. If the government does its part, industry will follow. It will make the requisite commitment of corporate resources because it sees profitability in the program, even though it may be decades away.

There are many examples of such government-industry partnerships, but the best developed come from the Defense Department. They are of sufficient interest in the current context that they bear further elaboration here, especially when we recognize that the weapons platforms that are being developed now using the partnership option will not be deployed for a decade or two-- a time frame not far from fusion's schedule evela if we

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concede the basic difference in the maturity of the technologies.

Two sub-options can be distinguished when one ex- amines the partnership mode. The first we call the "commercially-linked" sub-option; the second, the "non- commercial" sub-option. In both, the time horizon for the availability of a product that can be sold in the private sector as a result of the successful completion of the program (an eventuality that is by no means assured) is so long that private industry cannot rationalize its own full support of the development of the market and/or the product. Government needs to heavily subsidize the investment, but not totally subsidize it.

3. 2.1. The Commercially-Linked Partnership

the most profitable commercial airliner in aviation his- tory, the 747.

To be sure, the analogy to an energy development program, especially one like fusion that is still years away from its first commercial deployment, is not per- fect. In the Air Force example, the customer is also the buyer, with industry in between; but that fact notwith- standing, industry is involved from the very inception of the effort to define the product because they are stake- holders in the process and are recognized as such by their partner, the Air Force. If they cannot build at a profit what the Air Force wants, they will not do so. The process simply does not proceed. But if they can, then they are willing to bet that at the very least they will be involved in the development of new technology and at the very best gain a significant share of some future commercial market.

If the government agrees to subsidize development of some technology, there are situations where industry has a ready-made market for the output of the technology that the government wants to develop. In this case the government can proceed with a commercially-linked partnership. It is best exemplified by the way in which the Air Force procures its next generation weapon systems. (Again, it is crucial to our understanding that we recognize that the flight platform and profitability can be 20 years or more away.) How does Defense handle this problem? Why is industry interested?

The process begins with government professionals outlining the basic needs of the service, needs that are part of an ongoing process of definition fed into the system by the users--aviators and air battle strategists, in the Air Force case; the utilities in the case of a ma- turing fusion program.

The government professionals then call in industry on an informal basis and solicit their opinions regarding the feasibility of the basic design parameters. Industry input is tested against expert opinion in the form of DOD's in-house laboratories, and the process is iterated at con- siderable cost to the goverment until a viable, flyable, economic platform is developed that balances the demands of defense with the realities of the commercial manufacturing sector. Customer and developer work to- gether to bring a product to market that meets the needs of both. The process works for both partners because each has a stake in it. The goverment gets a weapons platform and industry gets a flying prototype that can be made into a commercial version or contribute signifi- cantly to the development of one. Even losers are win- ners in this mode of government-industry interaction. The losing entry in the competition for the C5-A became

3. 2. 2. The Non-Commercial Partnership

In the non-commercial sub-option, the government recognizes that there is no ready market for the output of a program that it needs to develop for its needs. For example, there is no significant maritime industry in the U.S. that can benefit from the development of systems that the Navy needs to deploy with its fleet in the same way that there is a commercial aviation industry that can benefit from the developments that the Air Force sponsors. Therefore the Navy solicits industrial partners on the basis that these partners will be their lead contractors. It chooses competitively the industrial partners that will lead the development of its selected programs for a significant time period and then makes a long-term commitment to them, say for 20 years or more. In turn, the selected industries establish business centers around these contracts and these business centers become the home for a dedicated cadre of professionals whose sole business is to support the government's mission. Isn't that exactly what is needed in fusion?

The process is best exemplified by the way in which the Navy procures its next generation weapons systems. Some 30 years ago it identified General Dynamics as its lead contractor in surface-to-surface missile technology; Raytheon in air-to-air; IBM in sonar; Gould in torpedo systems; and General Electric in radar. Each of these firms knew that when the Navy needed something in one of these areas, it would come to them. They were funded to take the lead in designing and building the fleet's systems. And because they knew that they had to be prepared to act quickly as problems arose, they built up in-house capability that to this day enables them to main-


tain world leadership in their designated area. They are committed to the Navy's business, and the Navy is committed to them.

Even in the Department of Energy, there is an oft- forgotten example of such a working partnership. When Admiral Rickover needed nuclear propulsion systems for the fleet, he chose coleaders to develop them. He set up the Knolls Atomic Power Laboratory under General Electric and the Bettis Laboratory under Westinghouse to design and build the systems he needed. The speed with which reliable nuclear propulsion entered the fleet is testament to the success of the approach. Can anyone imagine the same result being achieved under the vendor mode of operation, even with Rickover leading the charge? In fact, his choice only strengthens the argument that the partnership mode is the best way to get a development program going in a direction that fosters active and committed industrial involvement.

Additionally, it must be noted that the fusion program itself has at least two examples of non-commercial partnerships, the first being the current working arrange- ment with General Atomics and the second the developing partnership with industry that is being promoted by the U.S. ITER team. However, without intending to demean either example in any way, the GA situation is more a product of historical imperative than conscious programmatic policy and the ITER initiative has not been tested other than on paper.

In short, the partnership option works. Perhaps not perfectly; but then what system does? But indisputably, it works better than the vendor mode that has reduced fusion to its present intolerable situation--an important technology with a promising role to play in meeting the world's energy demands, and no way of getting there.

4. A NEW INDUSTRIAL POLICY

From the foregoing discussion, it is obvious that the fusion program is in the process of losing its most important constituency, and with it perhaps the only chance it will have in this century to realize the dream that so many have worked on for so long. The current industrial policy that relies on the vendor option to procure services and products from the private sector no longer serves the program's long-term interests. It must be changed; but because the government must continue to provide the bulk of the resources for the next decade or two, the matter can be reduced to the question of how industry and government should interact if the vendor option is no longer appropriate.

The partnership option is the natural next step. It has a number of attractive features to commend it:

�9 It is an accepted mode of government industry interaction, albeit a less traveled one.

�9 It meets industry's two major concerns:

It gives them a major role in program definition and in so doing answers the question of what the product should look like if it is to be manufac- tured ultimately by industry.

It provides a stable, predictable business environment that ensures the level of loyalty that industry needs so badly.

�9 It benefits the taxpayer in both the short term and the long term.

In the short term, it ensures that corporate commitments at the Board level are made to fusion as a business area because the Board of a company can ex- pect the company to be profitably involved for 20 years. It brings commitments of corporate resources, both people and facilities, needed to respond to the demands of being a partner, which proportionally leverage the government's contribution. Industry can and will spend overhead on programs that will be there for them over the years. And it brings an engineering perspective to the program that reflects the demands of the marketplace.

In the long term, it ensures that the people who ultimately must carry the technology into the commercial phase are planning for its deployment. It enhances the prospects that commercial fusion power will eventually repay the investment that an enlightened federal partner made in its early development.

The choice of a sub-option is somewhat more difficult. The commercially-linked mode works best when the commercial partners are basically in the business of selling some version of the product that the government is developing. And it is certainly true that the businesses that might get involved under a new industrial policy are likely to be firms already in the business of generating electricity or supporting the firms that do. However, the state of development of fusion is still sufficiently far from being commercial that one could equally argue that an analogy to the partners currently operating in this mode is inappropriate.

The non-commercial mode works best when the partners are unlikely to realize any immediate commercial application of the technologies that they are developing under government sponsorship. The work that is done for the government has more of a services, rather than a product, character. At this stage in fusion's de-

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velopment, the work that needs to be done is certainly of that sort, but just as clearly the idea of using the partnership mode is to encourage long-term commercial interest.

Beyond the obvious conclusion that some form of partnership is needed to bring industry back into the program as committed participants, the question of which mode is best is an open issue. On balance, the non- commercial mode, with different firms leading the program in different areas under an umbrella consortium that reports to the Department of Energy but is modified to support the ultimate objective of the program, which is to turn over the technology to industry, would seem to be the most desirable.

Implementation of such an industrial policy will not be easy. Critics will object on a number of counts, but the most likely objections will fall into one or more of the following three categories:

�9 Under any procurement policy other than the classic vendor mode, the program will cost more; and in the tight budgetary climate of today there is no defensible reason for following a plan that increases the burden on the taxpayer.

�9 Any industrial policy that changes the way that scientists in the laboratories and universities interact with industry will lead to inefficient science-and as a corollary, more expensive science.

�9 Any policy that puts too much emphasis on industrial involvement could put the entire program at risk. With industry attention always focused narrowly on the bottom line, often on a quarterly basis, it is entirely plausible that early difficulties in solving some of the more intractable engineering problems could lead companies to pre- maturely abandon the program as technically or economically infeasible.

With respect to the objection that a partnership program might cost more, it is important to compare "apples to apples." The major costs in the fusion program today are incurred by not-for-profit institutions, notably the national laboratories and the university community. On the assumption that industry would do the same work and just as well, there is some justification for the belief that it would cost more to do the job in industry. The difference is profit. What does the program get for it?

It gets a new level of corporate commitment that the private sector pays for out of overhead dollars. Those dollars offset the increase in cost due to profit. If now one adds the fact that the private sector is being involved because the program needs it to complete its mission,

then it should be argued that the increase in costs is for services that the program needs and is not paying for now. In any event, it is hard to make the case that the cost increase to the program that results from doing business with industry on a partnership basis is more than a percent or two. 6

The second objection is that the science that needs to be done, even if it is eventually done satisfactorily in industry, will be done inefficiently. And that necessarily costs money. This argument hinges on the belief that the scientists at work on the program in the national laboratories and the universities would abandon the program for other intellectual pursuits if funding were diverted from the not-for-profit institutions to the private sector, resulting in a long delay that would attend bringing a new team of professionals up to speed on the science of the enterprise. This is highly unlikely.

Of course, some senior people in the not-for-profit institutions will not choose to move to some new industrial laboratory, but rather stay with their old institutions; but their decisions will be driven mainly be economic considerations and not by some mistaken notion that their intellectual growth would be sullied by association with a for-profit organization. Would anyone suggest that the Bell Telephone Laboratories or the IBM Laboratories maintain an environment that encourages only mediocre science at the expense of the most creative?

The truth is that the great majority of scientists will follow the science and the money. They should; and they always do. How else does one explain the growth of the new Superconducting Supercollider Laboratory from a pasture to 2000 people in a little over a year? Nor will the wisdom of those who choose to stay behind be lost to the program. They will stay involved because it is their life's work. It will simply be that they guide from a distance as a new breed of leader emerges. And, of course, there will be some time lost as transitions are planned and executed. But such transitions are made all the time, in all programs, in all institutions, and in all sectors of the economy. If it is the right thing to do, time lost in accommodating to new surroundings is always recovered by the increased productivity that attends the shedding of less committed and less productive performers.

The last objection suggests that industry may be an

6 There is also some reason to believe that the program might not cost more to have it led by industry. Pressure has increased in the national laboratories to re-orient defense-related work and proceed rapidly with environmental cleanup activities. Laboratory overhead rates have risen substantially as a result so that they now often rival industry's.


unreliable partner, diverted by the temporary intracta- bility of some engineering difficulty or some short-term financial crisis to new and more immediate opportunities. If a program partner abandons its commitmen~ because it cannot handle the normal crises that beset any business, the program chose the wrong partner. The good partner stays with the program because it stayed with him. Loyalty repays loyalty.

As for the engineering problems, they are indeed formidable. Bring them on. It is precisely because they are difficult that the perceived problem will not materialize. On the basis that the government plans to stay the course with continued funding, why wouldn't industry? The harder the problems the more certain a company can be that their best and brightest will stay with them, a cadre of talent that wiI1 be there to ensure their corporate future. The best only leave when the problems become easy.

Two questions remain to be answered. If a new industrial policy based on a partnership approach is called for, when shouid the program begin? If a new industrial policy based on a partnership approach is necessary, how should it be implemented?

The answer to the first is simple. Now. Fusion is ready to move into its engineering phase. It is losing the interest of the constituency that must carry its effort into the future. There can be no question that if lost, recovery will be costly in both time and dollars; it is not incon- ceivable that if lost, the program itself will be lost.

The answer to the final question is more a matter of politics than logic. If fusion has moved into its engineering phase, logic suggests that the program's direction be turned over in its entirety to industry now. There is no new device under construction so there would be little in the way of facility disruption. The next machine could be designed and built with a maximum of industry and utility input as part of a whole new industry- driven effort on a nuclear qualified site that would probably speed up the engineering phase of the program by 5 years. People would need to be relocated and adjust- ments made in many ways to a new reality, but it would be a reality that enjoyed the uncommon virtue of being consistent with the demands of the market and the imperatives of the program.

Politics, on the other hand, suggests that the current institutional arrangements cannot sustain such an immediate and comprehensive reorganization. Therefore, the details of maintaining a balance between the strict logic of the situation and the understandabIe need to minimize dislocation must be ieft to the wisdom of the

government managers who have found solutions to even thornier dilemmas in the past.

5. SUMMARY

The need to increase the role of industry in fusion has been a constant for the past 30 years--something that always needs to be done in the future but: is never sufficiently important to displace more important priorities. While some would wish to continue this procras- tination, the program can no longer afford to do so. There are many pressures emerging in the energy market place having nothing to do with the feasibility of fusion that will nonetheless influence the program beyond anything that the science might dictate.

For example, the laws that govern the basic legal structure of the utility industry are being rewritten. Util- ities are being forced to re-examine the very way in which they do business. In such an environment, fusion must maintain its visibility and its competitive edge. It cannot continue as a high-powered physics program no matter how successful it is in prosecuting the science. It must become an industry-driven effort focused on the earliest possible entry of fusion into the marketplace.

Today there is no stated government policy to ac- complish that goal. In fact there is not even a stated policy on industrial involvement in the fusion program, only an unwritten guideline that industry growth will follow growth in the laboratory or core programs in good times and industry contraction will precede core contraction in bad times. It is not a policy that encourages enthusiastic endorsement by potential industrial partners. Is it any wonder that industry interest in fusion is flag- ging? The program is disconnected from its foremost customer and it is on the verge of losing the interest of its most supportive non-Federal constituency. 3?his cannot be allowed to continue if the government is serious about fusion's future. If the technology is ever to be a working element of the nation's energy supply infrastructure, it must become a part of the industrial base that supports the nation's energy indusry.

The key to understanding how the private sector can become more actively involved in fusion even as the long term nature of the enterprise is acknowledged is to understand how government does business with industry, and even more importantly how it can do business with industry.

When industry becomes involved in any government-sponsored undertaking, it generally does so either

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as a vendor or as a partner, the choice being determined by the government's perception of what it thinks it needs.

In the vendor option, the government disburses ap- propriated funds to the private sector through the federal procurement process. Industry participates by bidding for work that is defined solely by the government. This highly structured, carefully monitored process provides an absolute maximum of fairness and competitiveness in the award of taxpayer dollars. But it does not work uniformly well.

The vendor mode works best when the government procures a product or a system that is already well- defined and in use. It works least well for technology development programs. For industry to become involved and stay involved in such programs for the time it takes to bring them to market, two conditions must obtain. There must be a stable, predictable business environment, and there must be some perceived product that promises some perceived profit. Unfortunately, the vendor mode of operation is not suited to assuring that either of these conditions is met. Industry has little or no incentive to invest their own capital in a program that is statutorily limited in its ability to meet their basic demands.

There is another way that the government can con- duct business. It is the partnership option. In the partnership mode, industry is accorded a preferred role in the development of individual initiatives within a government-sponsored, taxpayer-supported program. In direct contrast with the vendor option, government supports a business environment that encourages the long-term involvement of industry in an identified program by granting it a domestic version of "most favored nation" status.

If the government agrees to subsidize development of some technology, there are situations where industry has a ready-made market for the output of the technology that the government wants to develop. In this case the government can proceed with a "commercially-linked" partnership. It is best exemplified by the way in which the Air Force procures its future weapons systems. In- dustry input is tested against expert opinion in the form of DOD's in-house laboratories and the process is iterated at the government's expense until a viable, flyable, economic platform is developed that balances the demands of defense with the realities of the commercial manufacturing sector.

In the "non-commercial" partnership, the government recognizes that there is no ready market for the output of a program that it needs to develop for its needs. For example, there is no significant maritime industry in the U.S. that can benefit from the development of

systems that the Navy needs to deploy with its fleet in the same way that there is a commercial aviation industry that can benefit from the developments that the Air Force sponsors. Therefore the Navy solicits industrial partners on the basis that these partners will be their lead contractors. It chooses competitively the industrial partners that will lead the development of its selected programs and then makes a long-term commitment to them.

Even in the Department of Energy, there is an oft- forgotten example of such a working partnership. When Admiral Rickover needett nuclear propulsion systems for the fleet, he chose co-leaders to develop them--the Knolls Atomic Power Laboratory under General Electric and the Bettis Laboratory under Westinghouse. The speed with which reliable nuclear propulsion entered the fleet is testament to the success of the approach.

An industrial policy that embodies some form of the "noncommercial" partnership option should be the next step in the fusion program. A number of features commend it.

�9 It is an accepted mode of government industry interaction, albeit a less traveled one.

�9 It meets industry's two major concerns. It gives them a major role in program definition and it gives them a stable, predictable business environment.

�9 It benefits the taxpayer in both the short term and the long term. In the short term, it ensures that real corporate commitments are made to fusion as a business area. In the long term, it ensures that the people who ultimately must carry the technology into the commercial phase are planning for its deployment.

Critics will object to an such an initiative on three counts:

�9 Under any procurement policy other than the classic vendor mode, the program will cost more.

�9 Any industrial policy that changes the way that scientists in the laboratories and universities interact with industry will lead to inefficient and therefore most costly science.

�9 Any policy that puts too much emphasis on industrial involvement could put the entire program at risk because industry attention is always focused narrowly on the near rather than on the long term.

With respect to the objection that a partnership program might cost more, it is important to note that the major costs in the fusion program today are incurred by not-for-profit institutions. On the assumption that indus-


try would do the same work and just as well, there is some justification for the belief that it would cost more to do the job in industry. The difference is profit. But there is also some reason to believe that the program might not cost more to have it led by industry. Pressure has increased in the national laboratories to re-orient defense-related work and proceed rapidly with environmental cleanup activities. Laboratory overhead rates have risen substantially as a result so that they now often rival industry's.

Moreover, if one adds that the private sector is being involved because the program needs it to complete its mission, then it should be argued that the increase in costs is for services that the program needs and is not paying for now.

The second objection hinges on the belief that the scientists in the national laboratories and the universities would abandon the program for other intellectual pursuits if funding were diverted from the not-for-profit institutions to the private sector. This is highly unlikely. People will follow the money. And if it is right to change venues, time lost in accommodating to new surroundings is always recovered by the increased productivity that attends the shedding of less committed and less productive performers.

The last objection suggests that industry may be an unreliable partner, diverted by the temporary intracta- bility of some engineering difficulty or some short term financial crisis to new and more immediate opportunities. If a program partner abandons its commitment because it cannot handle the normal crises that beset any business, the program simply chose the wrong partner.

The good partner stays with the program because it stayed with him.

As for engineering problems, they are indeed formidable. It is precisely because they are difficult that the perceived problem will not materialize. The harder the problems the more certain a company can be that their best and brightest will stay with them. The best only leave when the problems become easy.

If a new industrial policy based on a partnership approach is called for, when should the program begin? Now. Fusion is ready to move into its engineering phase. It is now feasible even though it is not yet economic. The next program step must be an industrially designed, net-energy system with as many commercial features as possible. It will take years to realize but it must happen and it must come from industry if they are ever to own fusion as a business.

If a new industrial policy based on a partnership approach is necessary, how should it be implemented? if fusion has moved into its engineering phase, logic suggests that the program's direction be turned over in its entirety to industry now. There is no new device under construction so there would be little in the way of facility disruption. The next machine could be designed and built with a maximum of industry and utility input as part of a whole new industry-driven effort on a nuclear qualified site. Politics, on the other hand, suggests that the current institutional arrangements cannot sustain such an immediate and comprehensive reorganization. The details of maintaining an appropriate balance between the two must be left to the government's managers. They have handled more difficult problems.

Documents

From patronage to partnership: Toward a new industrial policy for the fusion program